Philippines - Commercial Guide
Transport Infrastructure

This is a best prospect industry sector for this country. Includes a market overview and trade data.

Last published date: 2020-07-22

Overview:

The Philippines lags many of its neighbors in infrastructure development, being notorious for challenging traffic conditions and long commutes. Overcapacity in international airports across the country present a significant impediment to development and tourism. Port congestion is regularly raised as a constraint to economic growth. The need is great and there are opportunities in the transport infrastructure sector, if properly leveraged, that could be business opportunities for U.S. firms. 

In 2017, the Duterte Administration launched the ambitious $180 billion “Build, Build, Build” (BBB) Program to address the nation’s mounting infrastructure challenges. The initiative initially designated 75 projects valued at $48 billion as flagship projects. These included big-ticket rail, airport, road, and bridge projects across the nation. The Government favored designating most projects to tied aid loans because they are offered at concessional rates with long repayment period. Japan and China emerged as leaders in this area, quickly claiming the big-ticket rail projects.
Despite the interest that the flagship projects under the BBB Program attracted, a July 2019 review indicated that only two projects had been completed, and that only 21 projects were expected to be completed by 2022. Concerned, the government decided to overhaul the original list of projects, removed projects no longer deemed realistic, added other projects, including public-private partnership (PPP) projects.

The revised list of flagship projects now includes 100 projects valued at about $84 billion. There are 73 transport and mobility projects in the list, almost half of which are road, highway, expressway, or bridge projects. Other projects in this category are rail, airport, bus rapid transit, subway and port projects. The revised list of flagship projects can be found in http://www.neda.gov.ph/wp-content/uploads/2020/03/Revised-List-of-Infrastructure-Flagship-Projects-as-of-2.17.2020.pdf.

Out of the 73 transport and mobility projects, 32 will be funded by development aid, with only 16 to be financed through government funds. There are 25 PPP projects, 15 of which are unsolicited proposals. It should be noted that there are unsolicited PPP proposals, especially on airport projects, that are being reviewed and revised by the project proponents in view of the effects of the COVID pandemic.

Given the tedious procurement procedures of the Philippine Government, firms have tended to prefer pursuing big-ticket projects financed by the Japanese, as such projects ensure completion and payment. Procurement for projects funded through official development assistance is conducted according to the rules of the donor nation, and after the main contractor is selected, this contractor can partner with firms regardless of national origin. U.S. firms have served as sub consultants/contractors/suppliers of Japanese-funded projects in the past, completing projects valued in the millions.

PPP projects have been of interest, but the separation of the Build and Operate portions of infrastructure projects has presented concerns for U.S. firms not wishing to be responsible for operating or managing projects that they did not build. Furthermore, unsolicited PPP projects have also proven to be challenging as original project proponents can spend millions developing a project proposal with no guarantee that they will be awarded the project in the end since there is a mandatory Swiss Challenge,. U.S. firms have built relationships with the expected winners of such big-ticket unsolicited airport projects. However, as these firms are only the expected “winners,” U.S. firms have been hesitant to seal business relationships until there is full confirmation. Due to the pandemic, the Government has emphasized a preference to shift projects to PPP models. That being said, the private sector is struggling to survive and may not be as interested in developing and funding projects where the risk allocation between the firm and the Government is so lopsided. ODA is also expected to dry up as the nation emerges to middle-income status, and there will be a need for other sources of financing for the many projects that are needed and being conceptualized. 
Firms are encouraged to first identify sub-sectors or projects of interest to determine how to engage and assess risk.

Leading Sub-Sector:

Rail - Among the projects that initially garnered high U.S. interest in the flagship list include the $3 billion North-South Commuter Railway Project (Philippine National Railway (PNR) North 1), the $12 billion North-South Commuter Railway Extension (PNR) North 2 Project, and the $7 billion Metro Manila Subway Project Phase 1. The rail and subway projects are being funded by Japan, while the Asian Development Bank (ADB) is funding the civil works of a portion of the North-South Commuter Railway project. U.S. firms cannot be the main contractor on record, but the project size still allows for reasonable subcontracting, supplying, and consulting opportunities.

Airport- There are three major airport projects pending. While they are unlikely to move forward in the next year, these airports are needed additions to the infrastructure of Metro Manila. There will be opportunities for U.S. firms in many areas of airport construction and management when these projects are given the go signal to proceed. 

Market Opportunities

A range of products and services are needed for the completion of the infrastructure projects, including building products, construction equipment, electrical and mechanical equipment, and IT-related systems.

U.S. firms interested in projects can participate by:

Participating directly in a Philippine Government project tender.
•    Serving as a subconsultant/contractor/supplier for a project funded by Japan, Korea, or any other nation that allows for foreign participation.
•    Developing and submitting an unsolicited proposal to the local or national government.
•    Working as a subcontractor/consultant/supplier for a project proponent of a solicited or unsolicited proposal.
•    Competing for an Asian Development Bank (ADB) project focused on the Philippines.
•    Partnering with a local firm to do any of the above.

Resources

Philconstruct (trade show; https://www.philconstructevents.com/)
National Economic and Development Authority (http://www.neda.gov.ph/)
Department of Public Works and Highways (https://www.dpwh.gov.ph/dpwh/)
Department of Transportation (http://www.dotr.gov.ph/)
Public-Private Partnership Center (https://ppp.gov.ph/)

Bebe Montesines
U.S. Commercial Service, U.S. Embassy 
Email: Bebe.Montesines@trade.gov
For projects funded by the Asian Development Bank (ADB)
Mark O’Grady
U.S. Commercial Service Liaison to ADB
Email: Mark.OGrady@trade.gov